Monday, 16 February 2009

Corpoate sector run down their cash balances

For almost a year, the UK non financial corporate sector have been running down their cash balances held within the banking sector.

No surprises there. With the availability of credit severely reduced, firms have increasingly relied on internally generated sources of finance to keep their operations going.

The question is, however, how long can they keep drawing down on their bank balances? If firms run out of liquidity, they will start to close up, and begin to lay off workers. That is just the kind of thing to turn a recession into a depression.